Indian Automobile Industry The automotive industry in India is one of the larger markets in the world and had

previously been one of the fastest growing globally, but is now seeing flat or negative growth rates. The Indian Passenger vehicle market is the 7th largest market in Asia and 10th largest market in the world in terms of volume. The automotive industry comprises of the automobile and the auto component sectors. It includes passenger cars; light, medium and heavy commercial vehicles; multiutility vehicles such as jeeps, scooters, motor cycles, three wheelers, tractors, etc; and auto components like engine parts, drive and transmission parts, suspension and braking parts, electrical, body and chassis parts; etc. As per SIAM, passenger vehicles held a 15.07% domestic market share in the year 2011-12.India sold 2.6mm passenger vehicles in the domestic market and exported 0.5mm passenger vehicles in the year 2011-12 and grew at a 7 year CAGR of 14%. The passenger Vehicle industry is likely to grow at a CAGR of 10-11% till FY 2017 (Small car segment to grow at a CAGR of 6-7% in next five years and mid size segment to record a rise of 17-18% by FY 2017). Asian markets are expected to fuel the growth in the short term as demand drops in the European markets, and growing demand for mid-size cars and preference for diesel variants to further boost the realization over the medium term. Automobile production in India is expected to grow by a modest 9% in 2012-13 as per current industry forecasts. Major players in Industry Maruti Suzuki Tata Mahendra and mahendra Honda Hyndai Government Support to the Industry

The Industrial Policy of 1991 de-licensed the Automobile Industry in India, but passenger cars were de-licensed in 1993. Now, no license is required for setting up any unit for manufacturing of Automobiles except in some special cases. Further, 100% Foreign Direct Investment (FDI) is permissible. Removal of Quantitative Restrictions (QRs) from April 1, 2001 has allowed the import of vehicles, including in the passenger car segment where one can freely import subject to certain conditions notified by Directorate General of Foreign Trade (DGFT). To protect India from becoming a dumping ground for old and used vehicles produced abroad, the custom duty on the import of second hand vehicles including passenger cars has been raised to 111% Custom duty on Completely Built Units (CBUs) of large cars/ MUVs/ SUVs permitted for import without any type approval (value exceeding US$40,000 and Engine Capacity exceeding 3000 cc of Petrol and 2500 cc for Diesel) is being increased from 60% to 75%, which might force foreign brands to set up manufacturing facilities in India.

Porter Five Forces Model Threat of New Entrants: o High startup capital is required. o Highly technology intensive industry Threat of substitutes: o Fairly mild threat of substitutes in form of mass transit and bicycles. Competitive rivalry: o Two to three large companies in each segment. o Entry of foreign players has increased competition. Bargaining power of suppliers: o Well established supplier base

o Large players have controlling power over the suppliers. Bargaining power of customers: o Customers have a large variety to choose from o Large customer to producer ratio favors automakers Demand Factors: Financing Options: Auto industry observers cite car loans as the biggest driving factor for the expansion of the Compact Car segment. At present, almost 85 per cent of all new car sales are backed by auto finance, compared to 65 per cent five years ago. Income Advertising and Marketing: Due to the advertising techniques adopted by all the manufacturers in the CC-Segment the sales have risen drastically. It is all due to because the companies now a days are using even aggressive selling techniques for which they are even coping with the Film celebrities and Cricket stars and the companies are even trying to approach to the customer as to their demand for a vehicle at special interest loans, etc. Income of Consumer / Buyer: o The income of the consumer or buyer of the car is a very important factor of demand. In recent time we have seen that due to increase in the Income of the general public, there has been a shift from the Lower CC-segment cars to the Upper CC-segment cars.

o Due to the recent increase in the number of multinationals in India, the income level of the employees have risen drastically and have made CC-segment cars an entry level car for a lot of people. Availability of Easy Financing Options: A majority of PV purchases are financed through financial institutions. Over the past4-5 years car industry has been benefited through significant increase in affordability due to the decrease in EMIs. Car finance rates dropped from 17% in 2000-01 to 11%in 2005-06. However it has increased and averaged at 13.75% in 2006-07. The current hardening of interest rates is expected to affect demand by reducing affordability.

Supply Factors: Presence across Segments: Manufacturers with presence across various product segments can ensure higher volume and better capacity utilization by using the common manufacturing capacity. Typically a customer upgrades from one segment to higher segment and the presence across various segments ensures that the company retains its existing customers.

 Efficient Operations: Competition in PV segment is very intense and this requires the existing players to initiate steps to reduce their cost of production. Effective and successful operation methods like platform commonality, reduction in vendor base and workforce rationalization can help a company immensely.

Wide Dealer Network and Availability of Finance: A wide dealer network helps the company serve customers over wide geographical area. For e.g. Maruti has used its available wide service network as point of difference over competitors. The companies are tying up with the financial institutions having rural presence to provide additional financing options to customers in such areas.

Access to Latest Technologies: Indian PV segment is highly competitive with as many as 14 players operating in it and more than 80 models on the offering. But still any new model launch meets with increase in sales volume for the company. Moreover in a time when a substantial portion of Indian customer is looking to upgrade in higher segment, companies with latest technologies Future outlook of the Industry: Today, India has become a favorite investment destination as an Auto Hub, and is expected to remain the same in the future also. This has attracted a lot of foreign investment along with higher competition, thus driving the domestic players to become more efficient. This scenario is going to be more intense in India in the coming years. Rapid urbanization is another factor driving the demand for the industry. There is a vast untapped rural market as well as a huge potential for exports. Government supports this industry with favorable policies like the Automotive Mission Plan 2016 in which it has envisaged the Indian auto industry to contribute 10% to GDP by 2016. The government spending on infrastructure in roads & airports and higher GDP growth in the future will benefit the automobile sector. However, the current tax structure seems to be a deterrent. India faces competition from other low-cost countries like China, Brazil and Thailand where the tax structure is more conducive for investment than India. The government is gradually trying to bring about the necessary changes in the tax structure to make it more conducive for investment. It seems that in the long-run, the automobile industry is all set to grow.